Persistent domestic challenges alongside geopolitical risks under Trump 2.0 will act as a drag on China, according to Pictet’s Dong Chen, who said that «uncertainty is too high» for the country’s equity market.
In 2024, MSCI China delivered a late-year rally that resulted in a 19 percent gain for the year. And for 2025, Pictet has placed a target price of 71 for the index, resulting in low double-digit returns from current levels. But despite the optimism, the bank stressed that there were possibilities of downside surprises.
It noted that there were risks that could affect its market assumptions including domestic as well as foreign headwinds, most notably in the US under President-elect Donald Trump.
Consumption Slowdown
According to Dong Chen, chief Asia strategist at Pictet Wealth Management, the Chinese policy response since September has shown a greater sign of urgency and has resulted in some improvements, for example, in the stabilization of the property sector. However, there was still limited progress in other areas like consumption and the current measures are not sufficient to trigger a turnaround in market sentiments.
«One potential reason is you have the Two Sessions in March. So maybe some of the officials are reluctant to give a number without the official endorsement of the National People's Congress,» Chen said in a media briefing attended by finews.asia.
«[A]nother even more important reason is Trump is not in yet. Trump talked about a lot of things but you don't really know what he's going to do. I think the Chinese government is also trying to preserve some dry powder before they know what Trump is going to actually throw at them.»
Geopolitical Risks
On the trade war with the US, the bank’s base case assumption is for 20 percent tariffs against China resulting in 4.5 percent GDP growth in 2025. But if Trump delivers the full 60 percent tariff, growth could slow down closer to 4 percent and Chen believes that no amount of government measures will be able to fully offset this.
What’s more, sanction risks also need to be considered with the US Department of Defense recently adding Chinese tech giants to a list of companies that allegedly aid Beijing’s military.
«I think that's the biggest problem facing Chinese equities at this point is uncertainty is too high and you can be hit by something totally unexpected,» Chen exclaimed. «Tencent got included in a military list. Who would have imagined that?»
Investment Outlook
Overall, Pictet is neutral on Chinese equities and it is most positive on US and Japanese stocks. In the US, it cited the continued strength of the dollar, superior growth metrics and the prospect of tax cuts and deregulation as positive drivers. In Japan, it expects improvements in GDP growth alongside reasonable earnings growth forecasts and valuations that are close to long-term averages.
In fixed income, the bank favors euro or Swiss franc investment grade bonds over those in the US with decreasing rates and better conditions to withstand tariffs as well as political uncertainty.
The bank also named its three core convictions for 2025: favor cash-rich companies and financials; profit from increased M&A activity and; benefit from private equity’s revival.
